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BPCL (BPCL IN; Mkt Cap USD6.2b, CMP Rs756, Buy)
- BPCL reported 2QFY11 EBITDA of Rs24.7b. Higher than estimate EBITDA was due to higher than expected govt. compensation at Rs29.5b (v/s est of Rs27b).
- 1HFY11 EBITDA stood at Rs10.4b and PAT stood at Rs4.2b (v/s full year FY10 EBITDA of Rs24b and PAT of Rs15.4b).
- Subsidy sharing remains ad hoc; In 1HFY11, gross under recovery stood at Rs71b, of which upstream shared Rs23.7b and government compensated Rs29.5b.
- While expectations are high on diesel de-regulation and subsidy rationalization, we believe government is having second thoughts on the pace of de-regulation due to 1) higher oil prices, 2) forthcoming state elections and 3) impact on inflation.
- In our estimates, we model oil marketing companies (HPCL, BPCL and IOC) to share 11% of gross under-recoveries in FY11 and FY12. The stock trades at 13.1x FY11E cons. EPS of Rs57.5 and 1.8x FY11E BV of Rs430. Buy.
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